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Dahua Shares: Improved management efficiency makes up for short-term growth pressure

2020/01/03 14:02:44 Source: CICC 2020/01/03 14:02:44

Company news

Company status

At the end of December, we organized an investor visit Dahua shares Management. Through this visit, we saw that Dahua's management optimization and other measures that have been promoted in the past two years have begun to bear fruit. We believe this will help the company improve its gross profit margin and improve its cash flow. Although the short-term revenue growth is still affected by the domestic fixed asset investment cycle and Sino-US relations, there are certain uncertainties, but in the long term, we believe that the implementation of computer vision technology in various industries will promote the continuous development of the video IoT industry. Dahua's current 2020 valuation is 17xP / E, which is lower than the 2020 median P / E P / E of A / H's major electronic stocks.

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The internal process optimization has achieved initial results, and will continue to improve the company's gross profit margin and cash flow in the future. Since Li Ke took office in 2016, the company has been promoting changes in R & D, sales, supply, compliance and other aspects: 1) improving R & D efficiency; 2) reforming channels, excluding some channels with longer accounting periods and lower profit margins; 3) Establish supply centers overseas to respond to tariff changes; 4) Proactively reduce high-risk projects. After two years of development, the company's gross profit margin in 2Q19 increased significantly to 42%, reaching a historically good level. We believe that the company's gross profit margin still has room for optimization. In addition, 3Q19 net cash flow from operating activities turned positive for the first time in five years. We believe that in the future, the company's operation is expected to achieve stable growth through efficiency improvements, and there is a possibility of continuous improvement.

The short-term income growth is susceptible to macro influences, and is optimistic about the trend of video things in the long run. Looking forward to 2020, although government-related market growth will still be affected by the domestic fixed asset investment cycle and other uncertainties. However, we are still optimistic about the incremental market driven by the application of computer vision technology in all walks of life. ETC's no-charge, bright kitchens, and automatic waste sorting are good examples in 2019. See Machine Vision and AI + 5G And so on.

The list of US entities has limited impact. Through the adjustment and optimization in the past year, the company has been more stable in the face of trade frictions. At present, there are no obstacles to purchasing chips such as Intel, no products are delisted or out of stock, and business in North America and Western Europe is normal. We believe that the company's impact on the entity list has been very limited.

Valuation recommendations

We maintain the company's 2019/2020 profit forecast unchanged, introduce a net profit forecast of 4.312 billion yuan in 2021, and maintain an outperform industry rating. We believe that the positioning for the video IoT industry has opened up the company's development space, the company's growth is more certain, and the internal improvement will continue. The current stock price corresponds to 16.8x / 14.9xP / E in 2020/21 and maintains a target price of 25 yuan. There is still 17% upside for 2020/21 19.8x / 17.4xP / E.

risk

The pace of government procurement is difficult to control accurately; there is uncertainty in industry competition.

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